The State Of REITs: May 2018 Edition

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Includes: EWRE, FREL, FRI, GEO, ICF, IFEU, IYR, KBWY, LAMR, MORT, NURE, PPTY, PSR, QCP, REK, REM, REZ, ROOF, RORE, RVEN, RWR, RYN, SAFE, SCHH, SRET, UBA, USRT, VNQ, WHLR, WREI, XLRE
by: Simon Bowler
Summary

The REIT rally that began in March grew stronger in April as REITs again outperformed the broader market.

19 of 20 REIT property types yielded a positive total return during April.

The large cap outperformance that marked the first quarter reversed in April.

Corrections REITs (private sector prisons) achieved the strongest return in April, rebounding from a weak 1st quarter.

Shopping Center REITs remain the worst performing REIT property type year to date.

REIT Performance

In April, REITs (3.36%) performed better than the broader market: S&P500 (0.27%), DJIA (0.25%) and NASDAQ (0.04%). Although REITs averaged a -12.32% YTD return at the end of February, that return has improved to -7.14% at the end of April. The REIT sector is still in the red after 4 months of 2018, but it is clear that a recovery is underway as 95% of REIT property types yielded positive returns in April. Large cap REITs (1.32%) were notably weaker in April than micro-cap, small cap and mid cap REITs, each of which had total returns in excess of 3%. In this monthly publication, I will provide REIT data on numerous metrics to help readers identify which property types and individual securities currently offer the best opportunities to achieve their investment goals.

Source: Graph by Simon Bowler, Data compiled from SNL.com

Although large cap REITs underperformed by over 200 basis points in April, their performance year to date remains better than that of smaller cap REITs. After underperforming the sector in each of the first 4 months, micro-cap REITs have generated YTD total returns significantly below that of larger REITs. As can be seen in the graph below, thus far in 2018 there has been a positive correlation between REIT market cap and total return.

Source: Graph by Simon Bowler, Data compiled from SNL.com

Although REIT performance varied meaningfully by market cap, there was a much greater variance of performance by property type, ranging from -1.67% (single family housing) to +11.56% (corrections) in April.

Source: Table by Simon Bowler, Data compiled from SNL.com

19 of 20 REIT Property Types Yielded Positive Total Returns in April

This is up from 14 out of 20 property types with positive total returns during March. However, due to the severity of the January and February selloff, there are still only 5 out of 20 REIT property types with a positive total return year to date (up from only 2 at the end of March). For the 2nd month in a row, single family housing was the worst performing property type, primarily because of the poor performance of struggling Reven Housing REIT (RVEN). April marked the 2nd month in a row in which Reven (-10.73%) was the worst performing REIT. Corrections was led by the strong performance of GEO Group (GEO), which had a total return of 18.81% in April.

Source: Table by Simon Bowler, Data compiled from SNL.com

Although corrections had a stellar April, it remains one of the 15 REIT property types with a negative YTD return. Timber (+7.2%) remains the best performer year to date, led by the 18.4% total return for Rayonier (RYN). Shopping Center REITs (-19.3%) have delivered the worst total return over the first four months of 2018. 7 of the 20 worst performing REITs thus far in 2018 are shopping center REITs. In fact, all 19 shopping center REITs have yielded a negative return, ranging from -6.1% for Urstadt Biddle Properties (UBA) to a disastrous -62.4% for Wheeler Real Estate Investment Trust (WHLR).

The continuation of the REIT rally in April led to an FFO multiple expansion for many REIT property types, with only Malls remaining in single digits. The average price/FFO of equity REITs rose from 14.3X to 14.5X in April, but remains lower than it began the year. Although market volatility will likely continue and could push prices in either direction in the near term, REITs have the potential for further multiple expansion in 2018 given that most REITs are still trading at discounted valuations.

Source: Table by Simon Bowler, Data compiled from SNL.com

The multiples shown in the table above represent the average P/FFO of the equity REIT securities of each property type. The P/FFO figures in the table above exclude data from 11 REITs (down from 13 due to the addition of analyst estimates of FFO for Lamar Advertising Company (LAMR) and Safety, Income & Growth (SAFE)). This exclusion is due to insufficient analyst estimates of 2018 FFO/Share. This is the reason that only 1 out of 4 Timber REITs are included. The 11 REITs for which there is no P/FFO data are marked N/A in the table below. Once 2018 FFO/Share estimates are available for these REITs, I will add the data to the table in future updates. It is important to note that when comparing across different property types, P/FFO may be the best valuation metric for securities of one property type, but P/AFFO may be more appropriate for securities of another property type (example: Office).

Performance of Individual REIT Securities

Although the average equity REIT has returned -7% YTD, performance has varied dramatically from the -62% freefall of Wheeler Real Estate Investment Trust to the tremendous 59% return of Quality Care Properties (QCP). For those who are interested, I have included in the table below the full list of REIT YTD total returns ranked from worst performance to best. Additionally, I have included the Price/FFO and dividend yields for each equity REIT (as of 04/30/2018) to provide the reader with additional relevant information that can be used to determine which REITs represent the most attractive opportunity.

For the convenience of reading this table in a larger font, the table above is available as a PDF as well.

Simon_Bowler_REIT_Data_04.30.2018.pdf

Source: Table by Simon Bowler, Data compiled from SNL.com

Dividend Yield

Dividend yield is an important component of a REIT's total return. The particularly high dividend yields of the REIT sector are, for many investors, the primary reason for investment in this sector. As many REITs are currently trading at share prices well below their NAV, yields are currently quite high for many REITs within the sector. Although a particularly high yield for a REIT may reflect a disproportionately high risk, there exist opportunities in some cases to capitalize on dividend yields that are sufficiently attractive to justify the underlying risks of the investment. I have included below a table ranking equity REITs from highest dividend yield (as of 04/30/2018) to lowest dividend yield.

REIT

Ticker

Dividend Yield 04/30/2018

CBL Properties

CBL

19.1%

Washington Prime Group Inc.

WPG

15.5%

Government Properties Income Trust

GOV

13.8%

Uniti Group Inc.

UNIT

13.3%

New Senior Investment Group Inc.

SNR

12.1%

Global Net Lease, Inc.

GNL

11.4%

Select Income REIT

SIR

10.8%

Whitestone REIT

WSR

10.5%

DDR Corp.

DDR

10.5%

Global Medical REIT Inc.

GMRE

10.3%

Omega Healthcare Investors, Inc.

OHI

10.2%

Senior Housing Properties Trust

SNH

10.0%

Sabra Health Care REIT, Inc.

SBRA

9.8%

Spirit Realty Capital, Inc.

SRC

8.9%

Lexington Realty Trust

LXP

8.8%

Plymouth Industrial REIT, Inc.

PLYM

8.7%

Pennsylvania Real Estate Investment Trust

PEI

8.7%

Gladstone Commercial Corporation

GOOD

8.7%

Kite Realty Group Trust

KRG

8.6%

CoreCivic, Inc.

CXW

8.5%

Hospitality Properties Trust

HPT

8.5%

GEO Group, Inc.

GEO

8.4%

City Office REIT, Inc.

CIO

8.3%

MedEquities Realty Trust, Inc.

MRT

8.2%

VEREIT, Inc.

VER

8.1%

Condor Hospitality Trust, Inc.

CDOR

8.0%

EPR Properties

EPR

7.9%

Medical Properties Trust, Inc.

MPW

7.8%

CorEnergy Infrastructure Trust, Inc.

CORR

7.8%

Kimco Realty Corporation

KIM

7.7%

OUTFRONT Media Inc. (REIT)

OUT.REIT

7.7%

Independence Realty Trust, Inc.

IRT

7.7%

One Liberty Properties, Inc.

OLP

7.6%

Brixmor Property Group Inc.

BRX

7.4%

Ramco-Gershenson Properties Trust

RPT

7.4%

Gaming and Leisure Properties, Inc.

GLPI

7.4%

Bluerock Residential Growth REIT, Inc.

BRG

7.2%

Colony NorthStar, Inc.

CLNS

7.2%

Sotherly Hotels Inc.

SOHO

7.1%

Ashford Hospitality Trust, Inc.

AHT

7.0%

Preferred Apartment Communities, Inc.

APTS

6.9%

Chatham Lodging Trust

CLDT

6.9%

Iron Mountain Incorporated

IRM

6.9%

Farmland Partners Inc.

FPI

6.7%

Apple Hospitality REIT, Inc.

APLE

6.7%

BRT Apartments Corp.

BRT

6.6%

Welltower Inc.

WELL

6.5%

Gramercy Property Trust

GPT

6.4%

Tanger Factory Outlet Centers, Inc.

SKT

6.4%

W. P. Carey Inc.

WPC

6.4%

RLJ Lodging Trust

RLJ

6.4%

HCP, Inc.

HCP

6.3%

LTC Properties, Inc.

LTC

6.3%

Community Healthcare Trust Incorporated

CHCT

6.2%

CareTrust REIT, Inc.

CTRE

6.2%

Physicians Realty Trust

DOC

6.2%

Braemar Hotels & Resorts, Inc.

BHR

6.2%

Ventas, Inc.

VTR

6.1%

Front Yard Residential Corporation

RESI

6.1%

LaSalle Hotel Properties

LHO

6.1%

MGM Growth Properties LLC

MGP

6.0%

Park Hotels & Resorts Inc.

PK

6.0%

Hersha Hospitality Trust

HT

6.0%

Armada Hoffler Properties, Inc.

AHH

5.9%

National Health Investors, Inc.

NHI

5.9%

STAG Industrial, Inc.

STAG

5.8%

Weingarten Realty Investors

WRI

5.8%

Retail Properties of America, Inc.

RPAI

5.7%

Lamar Advertising Company (REIT)

LAMR.REIT

5.7%

Urstadt Biddle Properties Inc.

UBA

5.4%

Chesapeake Lodging Trust

CHSP

5.4%

Xenia Hotels & Resorts, Inc.

XHR

5.3%

UMH Properties, Inc.

UMH

5.3%

Investors Real Estate Trust

IRET

5.3%

Realty Income Corporation

O

5.2%

Cedar Realty Trust, Inc.

CDR

5.1%

Macerich Company

MAC

5.1%

Getty Realty Corp.

GTY

5.1%

Easterly Government Properties, Inc.

DEA

5.0%

National Retail Properties, Inc.

NNN

5.0%

Simon Property Group, Inc.

SPG

5.0%

Summit Hotel Properties, Inc.

INN

5.0%

STORE Capital Corporation

STOR

4.9%

Healthcare Trust of America, Inc.

HTA

4.9%

Four Corners Property Trust, Inc.

FCPT

4.9%

Education Realty Trust, Inc.

EDR

4.7%

InfraREIT, Inc. (REIT)

HIFR.REIT

4.7%

Piedmont Office Realty Trust, Inc.

PDM

4.7%

Taubman Centers, Inc.

TCO

4.7%

Mack-Cali Realty Corporation

CLI

4.7%

Clipper Realty Inc.

CLPR

4.6%

QTS Realty Trust, Inc.

QTS

4.6%

Franklin Street Properties Corp.

FSP

4.6%

Acadia Realty Trust

AKR

4.6%

Alexander's, Inc.

ALX

4.6%

Retail Opportunity Investments Corp.

ROIC

4.5%

DiamondRock Hospitality Company

DRH

4.5%

Life Storage, Inc.

LSI

4.5%

American Campus Communities, Inc.

ACC

4.5%

Brandywine Realty Trust

BDN

4.5%

Universal Health Realty Income Trust

UHT

4.4%

GGP Inc.

GGP

4.4%

Monmouth Real Estate Investment Corporation

MNR

4.4%

Saul Centers, Inc.

BFS

4.3%

Pebblebrook Hotel Trust

PEB

4.3%

Ryman Hospitality Properties, Inc.

RHP

4.3%

Healthcare Realty Trust Incorporated

HR

4.3%

Urban Edge Properties

UE

4.3%

Agree Realty Corporation

ADC

4.3%

National Storage Affiliates Trust

NSA

4.3%

Gladstone Land Corporation

LAND

4.2%

Highwoods Properties, Inc.

HIW

4.2%

Washington Real Estate Investment Trust

WRE

4.2%

Crown Castle International Corp. (REIT)

CCI.REIT

4.2%

CatchMark Timber Trust, Inc.

CTT

4.1%

NorthStar Realty Europe Corp.

NRE

4.1%

Host Hotels & Resorts, Inc.

HST

4.1%

CubeSmart

CUBE

4.1%

Mid-America Apartment Communities, Inc.

MAA

4.0%

Corporate Office Properties Trust

OFC

4.0%

Public Storage

PSA

4.0%

Liberty Property Trust

LPT

3.8%

Digital Realty Trust, Inc.

DLR

3.8%

TIER REIT, Inc.

TIER

3.8%

Regency Centers Corporation

REG

3.8%

CoreSite Realty Corporation

COR

3.8%

Columbia Property Trust, Inc.

CXP

3.7%

Apartment Investment and Management Company

AIV

3.7%

NexPoint Residential Trust, Inc.

NXRT

3.7%

Vornado Realty Trust

VNO

3.7%

AvalonBay Communities, Inc.

AVB

3.6%

Camden Property Trust

CPT

3.6%

Forest City Realty Trust, Inc.

FCE.A

3.6%

UDR, Inc.

UDR

3.6%

Equity Residential

EQR

3.5%

Extra Space Storage Inc.

EXR

3.5%

Weyerhaeuser Company

WY

3.5%

Federal Realty Investment Trust

FRT

3.5%

CyrusOne Inc.

CONE

3.4%

CIM Commercial Trust Corporation

CMCT

3.4%

Safety, Income & Growth Inc.

SAFE

3.3%

SL Green Realty Corp.

SLG

3.3%

American Assets Trust, Inc.

AAT

3.2%

Essex Property Trust, Inc.

ESS

3.1%

Potlatch Corporation

PCH

3.1%

Hudson Pacific Properties, Inc.

HPP

3.0%

Sun Communities, Inc.

SUI

3.0%

Prologis, Inc.

PLD

3.0%

Duke Realty Corporation

DRE

3.0%

PS Business Parks, Inc.

PSB

2.9%

Innovative Industrial Properties, Inc.

IIPR

2.9%

Cousins Properties Incorporated

CUZ

2.9%

Alexandria Real Estate Equities, Inc.

ARE

2.9%

EastGroup Properties, Inc.

EGP

2.9%

Seritage Growth Properties

SRG

2.8%

First Industrial Realty Trust, Inc.

FR

2.8%

Paramount Group, Inc.

PGRE

2.8%

Rayonier Inc.

RYN

2.7%

Douglas Emmett, Inc.

DEI

2.7%

Boston Properties, Inc.

BXP

2.6%

Equity LifeStyle Properties, Inc.

ELS

2.5%

Empire State Realty Trust, Inc.

ESRT

2.4%

Kilroy Realty Corporation

KRC

2.4%

Terreno Realty Corporation

TRNO

2.4%

American Tower Corporation (REIT)

AMT.REIT

2.2%

DCT Industrial Trust Inc.

DCT

2.2%

Equinix, Inc. (REIT)

EQIX.REIT

2.2%

Rexford Industrial Realty, Inc.

REXR

2.1%

Invitation Homes Inc.

INVH

1.9%

Sunstone Hotel Investors, Inc.

SHO

1.3%

American Homes 4 Rent

AMH

1.0%

Alexander & Baldwin, Inc.

ALEX

0.0%

Equity Commonwealth

EQC

0.0%

iStar Inc.

STAR

0.0%

JBG SMITH Properties

JBGS

0.0%

New York REIT, Inc.

NYRT

0.0%

Quality Care Properties, Inc.

QCP

0.0%

Reven Housing REIT, Inc.

RVEN

0.0%

SBA Communications Corporation (REIT)

SBAC.REIT

0.0%

Wheeler Real Estate Investment Trust, Inc.

WHLR

0.0%

For the convenience of reading this table in a larger font, the table above is available as a PDF as well.

Simon_Bowler_Dividend_Yield_Ranking_04.30.2018.pdf

Source: Table by Simon Bowler, Data compiled from SNL.com

Conclusion

During the first two months of 2018, REITs were sold rapidly, and in many cases indiscriminately, as investors panicked about rising rates. By the end of February, 96% of REITs had a negative YTD return. March, however, saw positive total returns for 70% of REIT property types and 80% of REIT securities. The rally continued in April with 95% of REIT property types and 81% of REIT securities producing positive returns. However, even after two solid months of recovery, only 22% of REITs are back in the black for YTD total return. With REITs so badly beaten down in the market thus far in 2018, it is worth considering to what extent such a selloff is warranted. REIT share prices should largely reflect the strength of the fundamentals on the sector and company level.

During times of great market volatility, however, the direction and magnitude of price changes can in some cases become disconnected from these underlying fundamentals. For this reason, a frequent and thorough analysis of REIT data can help identify relative value opportunities. Although I have written and will continue to write articles in which I present a buy thesis or sell thesis on individual securities, the purpose of my The State of REITs monthly article series is to present data and analysis in a largely objective fashion and allow the readers to utilize this data to determine which securities represent the best opportunity to achieve their investing objectives.

I am continuously compiling REIT data and analyzing it for value capture opportunities. I will continue to present this data and analysis in a monthly update here on Seeking Alpha. Additionally, I will continue to add further analysis or additional data to future updates. Feel free to let me know in the comments whether you have found this data and analysis useful and any other specific data or commentary that would be of value in subsequent reports. I will certainly not be able to fulfill all data requests, but I will attempt to add a couple of useful data requests to future reports.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: This article is provided for informational purposes only. It is not a recommendation to buy or sell any security and is strictly the opinion of the writer. Information contained in this article is impersonal and not tailored to the investment needs of any particular person. It does not constitute a recommendation that any particular security or strategy is suitable for a specific person. Investing in publicly held securities is speculative and involves risk, including the possible loss of principal. The reader must determine whether any investment is suitable and accepts responsibility for their investment decisions. Simon Bowler is an investment advisor representative of 2MCAC, a Wisconsin registered investment advisor. Positive comments made by others should not be construed as an endorsement of the writer's abilities as an investment advisor representative. Commentary may contain forward looking statements which are by definition uncertain. Actual results may differ materially from our forecasts or estimations, and 2MCAC and its affiliates cannot be held liable for the use of and reliance upon the opinions, estimates, forecasts and findings in this article. Although the statements of fact and data in this report have been obtained from sources believed to be reliable, 2MCAC does not guarantee their accuracy and assumes no liability or responsibility for any omissions/errors.